Residential Credit mREITs

Research evidence excerpt

Residential Credit mREITs

Investment Summary

The residential credit-focused mREITs offer a more discounted valuation than the Agency-focused, plus more book value upside

potential over time. We expect book values to be relatively stable and see the current valuation discount being a result of lower

relative ROEs/dividend yields (partially as a result of higher operating costs acting as a drag) vs. concerns with the asset quality.FINANCIALS We had been looking for lower short-term rates to serve as a catalyst for improved returns, but that is no longer likely. The

increased focus on controlling the origination process coupled with higher non-Agency volumes should drive higher mortgage

banking profitability plus highlight the franchise value of origination platforms.

Our preferred names in the sector are RITM, RWT, and MITT; see below for our investment thesis for our covered mREITs.

Exhibit 1 - Price target SummaryINDUSTRY

REPORT

Source: Bloomberg, BTIG Research

Key Themes

■ Book value outlook: We expect book values to be up modestly in 2026, though we expect there to be periodic bouts of

volatility over the course of the year. However, we would note that the residential credit MBS market has continued to develop

resulting in reduced volatility in periods of market stress.

■ Dividend outlook: We expect the dividends to be generally flat for the residential credit mREITs, with potential for increases

from CIM and ADAM. The key drivers of the upside to earnings power/dividend will be: 1) increased mortgage banking

contribution and 2) recycling of capital into higher returning opportunities. High operating costs continue to act as a drag on

returns, but the high cost of capital given current valuation limits the ability to access growth capital and achieve improved